Expert Insights

RFP trends: how will your travel costs be affected in 2017?

1 February 2017 by Lone Konradsen

In October 2016, we provided our guide to getting the best deal during Request for Proposal (RFP) season. With the main season now over for many, how did it go?

What did the forecasts tell us?

It’s a good idea to go into RFP negotiations with some understanding of the recent market. So how did 2016 turn out? The big question for many companies is ‘how will it affect your business?’ 

Initial forecasts from professional services firm PwC had outlined a sluggish year for the London hotel industry. It predicted an annual downturn in average room rates of 1.1% in the capital in 2016. On the other hand, it predicted a steady growth of 1.8% in rates in the provinces.

However, towards the end of 2016 there were signs that the industry was performing better than expected. TRI Hospitality Consulting reported in their year end report that London rates saw growth of 1.1% in the 12 months to December. Likewise, average room rates in the provinces had grown in excess of forecasts, with a 2.7% increase in average rates.

The PwC forecast for 2017 is painting a slightly more positive picture for London, with an expected increase of 0.4%, and ongoing growth predicted for the provinces at 1.8%.

What were the results?

Despite the perceived slowdown and uncertainty around the impact of the Brexit result, suppliers continued to drive rate growth through the RFPs. Initial rate submissions were up 4.2%. However, Capita Travel and Events customers ended up enjoying a lower, 1.5% increase on average on the previous years’ rates, with the main growth seen in the provinces at 1.7%, and London seeing a 0.9% increase.

These results not only varied by region and area, but were also impacted by the customer’s travel policy compliance and the ‘attractiveness’ of their business to suppliers. For example, customers with high levels of programme and rate-cap compliance saw year-on-year increases in average room rates of only 1.2%. In contrast, customers with lower levels of policy compliance saw average rises of 1.7%.

High-compliance customers also had a slight edge when it came to rate negotiations. They enjoyed an average reduction of 2.8% on the originally submitted rates, compared to low-compliance customers who saw an average 2.4% reduction.

Hoteliers are increasingly applying advanced yield management and displacement theories to decide which is the best business mix for their hotels – in other words, whether they’re better off accepting one corporate customer over another or whether reducing corporate business overall will drive higher than average room rates from customers booking Best Available Rates (BAR). Having an attractive ‘travel profile’ and controls in place to manage your spend will support your pitch to suppliers at RFP stage.

Our market specialists work closely with our customers to ensure their strengths are highlighted to suppliers and best value is achieved from the negotiated rates. This includes analysis and communication of length of stay, arrival patterns, policy compliance and the mechanisms in place to ensure we support the customers’ preferred suppliers in the year ahead.

In addition, we carry out detailed benchmarking to understand the real value of the rates submitted. This is not just against the market but against our customers’ peers, and factors in rate inclusions such as VAT, commission, breakfast or added benefits like parking and WiFi, which play an important role in managing the total cost of your stay. A 1% or 2% increase, for example, may still prove to be the most competitive rate at the property and therefore a good result for your programme.

What happened to hotel rates in key UK locations?

We have seen some really strong rate increases in some UK locations, including Leeds (3.3%), Farnborough (6.7%), Portsmouth (5.8%) and Bracknell (4.1%), mainly where demand continues to outstrip supply, and there is little or no hotel development in the pipeline. Milton Keynes, where rates have shot up over the last couple of years, has come in at a more respectable 3.7% increase this year.

On the other hand, a number of UK locations have seen room rates fall as a result of a drop in demand or an increase in the supply of accommodation to the area. Aberdeen was the most buoyant accommodation market in the UK for a number of years, until lower oil prices and new hotel openings started to drive rate reductions. This year was no exception to the trend, with overall rate decreases of 17.2% year on year. Another Scottish location feeling an impact is Edinburgh, where rates have fallen by 0.3% on average, following years of steady growth.

2017 RFP hotel rate change across the country

 

What hotel rate trends are we seeing in London?

Rates in London continue to vary according to area. Year on year, there has been a 5.8% decrease in room rates in the Monument, Tower Hill and Aldgate areas, contrasting with a 3.2% increase around Covent Garden, Holborn and the Strand. If we break this down further and look at Underground zones, properties in Zone 1 saw increases of 1%, compared to properties in Zone 2, which saw an overall decrease of 0.3%.

We have seen properties close to the Piccadilly Line enjoying the biggest increases, at 2.1% overall. Properties on the DLR (Docklands Light Railway), on the other hand, experienced an overall reduction of 0.4%. However, the Tube lines with the highest concentration of properties on our customers’ programmes nearby are the District Line and Circle Line. Overall, these properties saw modest rate increases of 0.5% and 0.4% respectively.

As highlighted in our recent blog on the real cost of staying in different London travel zones, hotels in Zone 2 are on average 14% cheaper than those in Zone 1. So the decision to travel a couple of extra stops to your meeting could make a big difference to your budget. If you can stay in Zone 2, you’ll benefit from the fact that virtually all hotels saw either rate holds or reductions year on year. The only exception was Fulham and Parsons Green, which saw a slight increase of 0.9%.

So, what are the key hotel trends at supplier level?

In terms of rooms in the pipeline, the picture for 2017 is looking positive. PwC expects an additional 11,400 rooms to launch regionally (a 2.4% uplift on last year), and a further 7,200 rooms in London (a 5% uplift). Market intelligence from AM:PM attributes much of this to the continued rise of the budget brands, which account for 45% of rooms currently in the pipeline.

With ongoing investment in the budget hotel sector, we continue to see rate growth across these operators, as they attempt to close the gap between economy and full-service properties. Budget rates increased by an average of 5% last year, and a further 2.2% this year. Despite these increases, budget properties continues to add value to customer programmes. Moreover, the majority of properties accepted on customer programmes are in the three- and four-star segments. Those categories saw rate increases of 1.7% and 1.3% respectively.

What are our key points to take away as we move towards the mid-year RFP season?

While forecasts are lower for the year ahead than at any time in the last eight years, suppliers naturally continue to drive rate increases. However, they are also evaluating the impact of a customer’s business on a case-by-case basis. Therefore, demonstrating you have high travel policy and programme compliance, and the right controls in place to support the programme, will put you in a much stronger negotiation position with your suppliers.

As we have seen, both geography and changes in demand and supply have an impact on rates overall. It’s important to understand local market changes, so you can take appropriate action. Don’t forget that flexibility on your London travel programme and utilising the Underground network can not only realise actual savings, but also reduce the impact of any year-on year rate increases.

Lastly, do consider what steps you can take in 2017 to improve your RFP results next year. Why not speak to one of our market specialists to get some ideas?

Interested? Let’s have a chat about your company’s travel, meetings and events objectives - from the stuff that keeps you awake at night, to the everyday experiences of your employees! Call us on 0330 390 0340, or submit the details below, with an idea of the times that suit you for a call.